Date: Dec. 15, 2015
Speaker: Jay D. Hanson, Board Member
Event: PCAOB Open Board Meeting
I would like to begin by thanking the staff for their hard work on this project and their patience as we worked through many difficult issues. Members of the Office of the Chief Auditor, including Marty Baumann, Jennifer Rand, Jessica Watts, Lisa Calandriello, and Karen Wiedemann; the Office of General Counsel, including Gordon Seymour and Vincent Meehan; staff from our Center for Economic Analysis, including Andres Vinelli and Morris Mittler; Sarah Williams and Carl Heermann from our Division of Registration and Inspections, and finally, our team in Information Technology, Stephen Raia, Jun Yang, Kim Brainard, Ankur Agarwal, and John Schneider — all deserve our thanks for sticking with this project for six years and getting us to where we are today.
I support the adoption of the proposed rules and amendments that will provide investors and other financial statement users with information about engagement partners and accounting firms that participate in audits of issuers. In prior statements I expressed concern about whether our earlier proposals provided an appropriate balance of the potential costs and benefits of the contemplated requirements. Having thoroughly explored these issues over the last several years, I believe that the rules and standards we are finalizing today – requiring the respective disclosures in a PCAOB form to be filed and made public on the PCAOB website – represent the most practical approach and will provide investors with information they have long requested without imposing unreasonable burdens on auditors or issuers.
The new requirements to provide information about the identity and extent of participation of other audit firms in an audit may be very useful information for investors. This information has historically been unavailable to investors, in part because our standards prohibited disclosure of this information in most cases. Identifying the other firms that participated in the audit will permit investors to consider all relevant information that may be available about the other firms, including their size, network affiliations, location – especially if they are in foreign jurisdictions -- their areas of expertise, whether the firms are registered with the PCAOB and their inspection histories and results. Firm identity and reputation is often the only basis – however imperfect – on which investors can judge audit quality, and the standards we are adopting today will increase transparency into the identities of firms participating in the audit.
In light of investor demand for the information, I also support the new requirement for the disclosure of the identity of the engagement partner. Having worked in the audit profession for many years, I am aware of the importance of this role to a high quality audit, and I understand investors' desire to have access to this information. It will, of course, take time for investors or commercial data aggregators to accumulate partner-specific information to provide context for the disclosures we are requiring today. But, over time, coupled with information about the partners' experience and history, making this additional information available to investors may incrementally increase their ability to make judgments about audit quality, and, by extension, the credibility of financial statements.
Pending SEC approval, the rules and amendments we are adopting today will be effective for audit reports issued in 2017, first for engagement partner disclosure and subsequently for the identification of other audit firms. Between now and then, our staff is planning to issue implementation guidance to help firms better understand the requirements and how they should be applied in a variety of circumstances. As firms begin to consider necessary steps, I urge them to contact the PCAOB staff to submit questions they may have, allowing those questions to be addressed in the staff guidance where appropriate.
Finally, I would like to thank the staff of the SEC for their input, as well as all of the individuals and organizations that provided comments on our series of proposals over the last several years. This last round of feedback provided very useful operational suggestions and questions, which led to one important addition: a unique partner identifier. Our approach improved as a result of all the input we received over the years, and we appreciate commenters' time and attention.